Ask The Expert: Which Friend SHOULDN’T I Lend Money To?

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A reader is torn between her boyfriend and best friend.

Question:I saw what you wrote a couple weeks ago about making personal loans. Talk about a perfect storm: My boyfriend and my best friend both want me to loan them money! I have the money to help one comfortably, but both will wipe out my savings. I prefer to lend to only one, but I cannot decide which. My boyfriend wants less ($2,000 to pay down his high-interest credit cards) while my best friend wants more ($3,000 to buy a used car after her 1999 Corolla finally died).

Here’s my problem: My boyfriend really isn’t good with money while my best friend is. My boyfriend will buy all his buddies drinks in a bar on his credit card, while my best friend will eat ramen noodles to make ends meet. Both were laid off last year and are struggling with lower-paying jobs. What do I do? My parents are no help with questions like this, because they say, “Never lend to friends.” What do you say?

— Erica in Tennessee

Howard Dvorkin CPA answers…

I hate to criticize your parents, but I must here.

Certainly, lending money must be done carefully. However, I’m suspicious of the word never. I prefer to make financial decisions based on facts rather than arbitrary rules. As I wrote in my second book Power Up…

Friends you can trust are more of a luxury than anything you could possibly buy or own. I can’t even begin to remember all the wonderful stories my clients have told me about how their friends helped them pull through tough times. They would have collapsed under the pressure of their financial calamities if it weren’t for the friends who helped them bear the weight.

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Your parents are from a generation where lending among friends was frowned upon. In fact, a study last month revealed, “Millennials are more likely (67 percent) than any other age group to lend money to friends compared to 47 percent aged 55-64 and 44 percent aged 65 plus.”

What you should do

While I believe lending among friends can be helpful, I’m also wary. I have a rule: If I’m lending money to help a financially responsible friend overcome an emergency, I’m there with open arms and open wallet. However, if a friend constantly mismanages his money, I refuse — not out of arrogance or anger, but out of concern.

A loan in that case will only mask poor spending habits. You don’t solve a problem, you just delay an inevitable reckoning.

Also, I don’t believe in bankrupting yourself to help others. There are often other solutions. In the case of your boyfriend, he has a common problem I’ve seen often: credit card debt. Before lending him money, let Debt.com lend him an ear — tell him to call one of our certified credit counselors at 1-800-810-0989. He’ll receive free debt analysis, which can lead to a plan to get out of that debt himself.

As for your best friend, if you follow the advice I gave last week, you should be OK, Erica. More importantly, I’m concerned about your boyfriend. Are you considering marriage? If so, I can’t urge you enough to sit down and have a frank conversation about money. You’d be surprised how many couples get married without knowing enough about their spouse’s spending habits. Don’t believe me? Check out these surprising facts.